Medical Expenses Increasing

Health Plan Options May Return As Issue

The increase, confirmed by government and private economists, is likely to have important implications across the country. Among them:

* Workers will have to set aside more of their wages to pay for health care, or accept smaller pay increases.

* Some workers may lose their health insurance if employers follow past practice and pass along higher prices to workers.

* Government at all levels could come under new pressure to fill the gap for growing numbers of uninsured people.

``I think the rise is a big deal,'' said Cathy Hurwit, legislative director of Citizen Action, a consumer group that has lobbied for universal health insurance.

How big of a big deal will depend on the actual size of the increases, health care experts said.

No one expects the kind of annual double-digit jumps the country experienced in the late 1980s. Few, however, expect a repeat of 1996, when health care costs measured by the Labor Department's Consumer Price Index rose only 3 percent, the smallest annual increase in 31 years.

The Labor Department does not make projections, but other experts think annual increases in the range of 4 percent to 6 percent a year are in the offing. Some say the 1997 increase may be relatively modest, but that health care costs will climb continuously during the next several years.

In 1996, the average employee health plan in Connecticut cost employers $5,278, almost a $1,000 more than the figure for the Northeast, according to A. Foster Higgins Inc., a benefits consultant. If an employer passed along all of a 4 percent increase, a typical worker would have to pay $211 more this year for the same plan.

In a recent, more-pessimistic projection, Kenneth E. Thorpe, director of the Tulane University Medical Center Institute for Health Services Research, said the increase could be $500 for a middle-income family.

Commenting on Thorpe's study, Henry E. Simmons, president of the National Coalition on Health Care, said, ``The data confirms the trend we have anticipated, that health care cost pressures have resumed and will continue to build.'' The nonpartisan coalition includes nearly 100 business, consumer and labor organizations.

Predictions that health care costs would rise became reality recently when the Labor Department reported that the medical component of the Consumer Price Index rose. In March, the health segment of the index went up 0.4 percent, the largest monthly increase since the end of 1995. That compared with a 0.1 percent increase for the price index as a whole.

Savings haven't lasted

Health care cost increases gradually slowed during the first half of the 1990s as managed care spread across the nation. Managed care was designed to provide consumers better coordination of their care and to eliminate unnecessary services, thus cutting costs.

About three-fourths of all Americans who have private health insurance are now in some form of managed-care plan.

As managed care rose to prominence, economists periodically questioned whether the savings it apparently was producing would be long-lasting. Based on recent experience, many now believe the savings were only temporary.

``A lot of data show it's a one-time savings,'' said Paul Fronstin, research director at the private Employee Benefit Research Institute.

One reason is that many managed-care plans have abandoned the practice of permitting consumers to see only a small number of doctors. Responding to complaints about the limits, the plans allowed patients more freedom in selecting doctors, but that added to costs, Fronstin said.

Another factor is that many managed-care plans held down prices for several years as they engaged in a fierce contest to sign up customers. But now, said Ray Linstrum, managing consultant in Foster Higgins's Stamford office, the emphasis is on boosting profits.

``I think we're seeing a lot of that in the marketplace,'' Linstrum said.

In his analysis, Thorpe also suggested that health plans have had a history of limiting price increases when they came under close public scrutiny, then boosting them when attention turns elsewhere. For example, President Clinton's proposal to overhaul the health care system sparked sustained public interest in the subject in 1993-94, a period that coincided with a slowdown in increases.

Aging population

Other reasons experts said prices are increasing include:

* The population is aging, with the oldest of the 75 million baby boomers already sliding into their 50s. Typically, older people require more health care services, said William Custer, professor of insurance at Georgia State University. The demographic trend is expected to put pressure on health care costs for years to come.

* Expensive new equipment continues to arrive on the market, and health plans often experience competitive pressure to acquire it. In addition, higher drug prices are pushing up overall medical spending, several analysts said.